Boston College, Carroll School of Management

Mobile Payments: Who wins, who loses, what’s next?

Before the start of the semester, I knew next to nothing about FinTech. It wasn’t until our trip to New York, and the panel we attended, that I really began to gain an understanding of the role FinTech plays in our everyday lives. After hearing from Socure, Bread, Bessemer Venture Partners, and PetalCard, I realised that FinTech expands far beyond online banking. It includes no-fee credit cards, and verification software, as well as digital peer-to-peer transactions (Venmo). FinTech is also important in the B2B world, as showcased by the rapid growth of Square, and Irish competitor Stripe.
As I thought more about the applications of FinTech in my everyday life, one particular technology stood out above the rest: Mobile Payments.

There are a variety of different technologies under the umbrella term of ‘Mobile Payments’.
Firstly, there is ‘Tap-to-Pay’ technology, including Apple Pay, Samsung Pay, and Google Pay. Added to this, many chain-restaurants are offering their own in-app payment features, which have become increasingly popular at establishments like Dunkin’, Chipotle, and Starbucks, to name a few. These features allow users to skip the line, and pick up their order upon arrival, or as soon as it’s ready. Starbucks’s in-app payment feature is actually so popular that it has more monthly users than Apple Pay, according to research by eMarketer.

Where are we now?

Right now, consumers find themselves in the middle of a weird transitional period. Mobile payments aren’t yet used by a majority of people in the US, but they’re becoming more popular. In this transitional period, things can get pretty confusing, and there are a lot of unanswered questions.
For example, if a large number of people have already place a mobile Chipotle order, but there’s already a long line in-store, which orders are prioritised, and why? Typically, it is mobile orders that are bumped to the top of the queue, while the people waiting in line must continue doing so. This raises even more questions: is a once-off mobile customer more valuable to the company than a loyal cash-paying customer? Why should the customers who are physically in the store have to wait on behalf of someone ordering on their way?
Until a majority of people use mobile payments, many of these problems will persist.

What’s at risk of disruption?

With the number of potential applications of this technology, it’s clear that something has to give way. The use of cash is on the decline, but mobile payments threaten a number of different payment methods, too.

Debit Cards

Contactless cards are incredibly popular in European countries and in Canada. With contactless, a customer’s card doesn’t need to be swiped or inserted for small purchases (there is an RFID chip in the card allows for it to be tapped off a scanner). Despite potential security threats, this trend confirms my suspicion that swiping/inserting a card is too much effort for the average customer in 2018.

This technology has paved the way nicely for services like Venmo and Apple Pay, which can be linked directly to your checking account, and which have the capacity to transfer money instantly. Not only is Apple Pay significantly faster than typical chip technology, but face-detection and fingerprint scanners are more secure than a 4-digit PIN.
If the amount of time it takes to process a transaction is the issue, mobile payments will be replacing physical cards before we know it.

Self-Checkouts

I recently came to the realisation that I absolutely detest self-checkouts. They’re huge, they’re clunky, and sometimes they don’t work. The biggest offender when it comes to self-checkouts is CVS, whose ancient red supercomputers spew out yards worth of receipts every single time I try to buy a snack. It’s simply not efficient, and I hate it.
It is often reported that Millennials and Gen-Z-ers gravitate toward self-service, because we hate talking to real people. While there is some truth to this, I think it’s an over-simplified explanation. My reasoning behind using the self-checkout has more to do with my innate desire to use the newest and best technology that is available to me, whenever I can. In this case, it just so happens that the best technology available is old and terrible.
One potential replacement for self-checkouts is being pioneered by Amazon, in their Amazon Go stores. Here, they simply decided to get rid of checkouts altogether, opting instead for their own variation on in-app mobile payments. If this model could be adopted universally at some stage in the next few years, I’d be beyond happy.

What’s next?

As the number of people using mobile payments grows rapidly, we need to think about what’s coming next. In order to do this, it’s important to determine whether the convenience of mobile payments should be dished out to customers or enjoyed by the businesses that use them.
We’ve already established that in-app payments benefit businesses. They receive money more quickly than they would from a credit card sale, customers are far more likely to spend pre-loaded money, it’s easier for a customer to revisit the app and reorder the same thing, which increases customer loyalty, etc.
Aside from the transaction time that is saved, the only real benefit for customers is the right to skip the line upon arrival. The popularity of mobile payments is rooted in the idea that if you order online ahead of time, you will never wait in line again.

Or will you?

As more and more people use these in-app payment features, surely the number of people walking into the store and paying with cash is bound to decline. On occasion, I have had to wait a fair amount of time for my mobile order, due to a backlog of other mobile orders. If this is what mobile ordering looks like now, I don’t like to imagine how much worse this backlog will become in the next few years.
If the objective of these companies is to have as many customers as possible use this technology, they are running the risk of simply moving the checkout line from the register to the pick-up point, essentially rendering the whole concept useless from the customer’s point of view.

So if mobile payments really are to be the future of exchange, I hope that the companies using it will think of clever ways in which they can benefit the customer, outside of the handful of seconds saved in the payment process, and outside of skipping the line. Perhaps they could offer discounts and rewards, or even dynamic pricing based on desired wait time.

Either way, I’m so tired of self-checkouts that I honestly don’t care what the cost of eradicating them is. I’ll pay whatever.

Related

Post navigation

One thought on “Mobile Payments: Who wins, who loses, what’s next?”

Nice post, Aidan. I also hate self-checkouts, and would much rather a mobile payment method, although I’m a little scared that the enormous lack of friction might encourage me to spend more without thinking much about it (it’s a psychological thing for me to carry cash) How much of an issue do you think security and safety will be with this transition to mobile payments? On one hand, cash can be a physical object prone to theft, but is leaving digital crumbs on mobile payments information on a platform prone to even bigger safety breaches?